and Loss Statement (P&L), also known as an income statement
or statement of earnings, is a financial statement that provides a summary of a company's revenues, expenses, and net income over a specific period of time. It is one of the key financial statements used by businesses to assess their financial performance and determine their profitability.
The primary purpose of a P&L statement is to show the company's ability to generate profit by increasing revenue, controlling expenses, and managing costs. It provides valuable insights into the company's operational efficiency, sales performance, and overall financial health.
A typical P&L statement consists of several sections that present different aspects of a company's financial performance. The top section usually includes the company's total revenue or sales, which represents the amount of money
generated from the sale of goods or services during the specified period. This section may also include any other income sources, such as interest
or investment income
Below the revenue section, the P&L statement presents the company's cost of goods sold (COGS) or cost of sales. COGS includes the direct costs associated with producing or delivering the company's products or services, such as raw materials, labor, and manufacturing overheads. Subtracting the COGS from the revenue gives the gross profit
, which represents the profit made after accounting
for the direct costs of production.
Following the gross profit, the P&L statement lists the operating expenses. These expenses include selling, general, and administrative expenses (SG&A), research and development costs, marketing
expenses, and other overhead costs necessary to run the business
. Subtracting the operating expenses from the gross profit yields the operating profit
or operating income
After the operating profit, the P&L statement includes non-operating income and expenses. Non-operating income may include gains from investments or other sources not directly related to the core business operations. Non-operating expenses can include interest payments on loans or losses from investments. The difference between the operating profit and non-operating income/expenses gives the pre-tax profit.
The final section of the P&L statement shows the company's income tax
expenses, which are calculated based on the applicable tax rates and regulations. Subtracting the income tax expenses from the pre-tax profit gives the net profit or net income, which represents the company's bottom-line profitability.
A P&L statement is typically prepared for a specific accounting period, such as a month, quarter, or year. It allows businesses to track their financial performance over time and compare it with previous periods or industry benchmarks. By analyzing the components of the P&L statement, businesses can identify areas of strength or weakness, make informed decisions, and develop strategies to improve profitability.
In summary, a Profit and Loss Statement (P&L) is a financial statement that provides a comprehensive overview of a company's revenues, expenses, and net income over a specific period. It serves as a vital tool for assessing financial performance, identifying profitability drivers, and making informed business decisions.